CBDT could scan firms’ outbound investments

MUMBAI: Indian firms establishing operations abroad and, within the course of, resorting to aggressive tax planning through funding constructions to mitigate their tax legal responsibility might discover themselves within the harsh highlight of the taxman.

“We now want to think about preserving and augmenting our tax base. We’ve to have a look at the Indian trade, which is launching globally. We haven’t but paid a lot consideration to this a part of tax compliance (referring to outbound investments). We’ve been extra centered on inbound investments,” mentioned Akhilesh Ranjan, member (laws), Central Board of Direct Taxes (CBDT).

Ranjan can also be convener of the duty drive for drafting a brand new direct tax code (DTC). “It’s now time to have a look at what mechanism Indian trade is using to scale back its tax liabilities. If there are loopholes within the regulation, we have to take measures to safeguard in opposition to that,” he added.

Talking at a tax convention organised by the Basis for Worldwide Taxation (India) collectively with The Worldwide Bureau of Fiscal Documentation, Ranjan offered a broad highway map of the potential future developments within the tax area, particularly in worldwide tax. Abroad investments by India Inc are fairly important. In line with the RBI’s statistics, outward overseas direct funding (comprising fairness, loans and ensures) stood at $1,757 million in October this 12 months as in comparison with $1,962 million in October 2017.

Talking to TOI on the sidelines of this convention, Ranjan elaborated that aggressive tax planning, which leads to parking of funds — reminiscent of by means of royalty cost to associated entities in tax-favourable jurisdictions — is likely one of the points that may very well be examined. He identified the measures taken by the US as a part of its tax reforms to curb income leakage and garner its share of tax by BEAT (see graphic).

Whereas no tax proposal shall be rushed into, the method of examination and deliberations on steps that may be taken to forestall income leakage seems to have begun. To be able to curb foreign exchange outflows, plans to curb extreme royalty funds to associated events abroad by prescribing limits is already on the agenda of the federal government.

Referring to the present sizzling subject within the tax area — the challenges of taxation in a digital economic system — the CBDT member mentioned, “You can not ring-fence a digital economic system. Enterprise itself has turn out to be digital.”

India has in place an equalisation levy, which is imposed at 6% on B2B commercials, the place funds made by the Indian entity to a overseas firm exceeds Rs 1 lakh in a 12 months. Ranjan referred to this as an interim measure and identified the significance of the idea of ‘important financial presence’ for figuring out tax incidence.

Below new digital enterprise fashions, a non-resident firm can keep on a enterprise and work together with prospects out of the country with out having a bodily presence in that nation. India’s long-standing place in worldwide tax discussions is that the worth of digital enterprise can also be created by the buying energy of the market the place the products and companies are consumed.

It could be recalled that on July 13, CBDT invited feedback and options on ‘important financial presence’, which might set off a tax legal responsibility for the overseas entity. India had launched this idea underneath part four of the Finance Act 2018. CBDT has sought suggestions on the income threshold of transactions that might denote important financial presence and the edge for variety of customers. “We’re at the moment inspecting this and hope to give you a viable enterprise mannequin. As well as, we proceed our dialogue with the worldwide neighborhood,” Ranjan mentioned.